Chemical Industry Assessment for 2020-2021

2020 was a difficult year due to the well-known pandemic. Public health was severely affected, and the global economy suffered negatively from supply chains to logistics. For this reason, the chemical sector, which initially faced a serious contraction, regained certain growth momentum and strengthened its position, particularly through initiatives in hygiene, cleaning, pharmaceutical and drug manufacturing. Our chemical sector did not cease production and exports during the pandemic. We made extraordinary efforts to increase sectoral exports and to overcome practically every obstacle that emerged during the coronavirus outbreak. As İKMİB, we acted with human health first and prioritized our country's needs. On the other hand, as İKMİB, we took the lead in the digital transformation that came to the fore during the pandemic and signed many firsts. We conducted Turkey's first sectoral virtual trade delegation in digital exports and the first digital awards ceremony in exports. Our highest-exporting subsector was plastics and plastic products with a 3.42 percent increase and USD 6.33 billion in exports. Our other major exporting subsectors were "Mineral Fuels, Mineral Oils and Products," "Inorganic Chemicals," "Essential Oils, Cosmetics and Soaps," "Pharmaceutical Products," and "Rubber and Rubber Products." Our subsector with the highest growth rate was miscellaneous chemical substances with a growth rate of 46.61 percent. Although we entered the year under the shadow of the pandemic globally, our hope is that, depending on the spread and effectiveness of vaccination, especially in the second half of the year, we will enter a more positive process. In the two-month period this year, we achieved USD 3.3 billion in chemical substances and products exports. Economic indicators show an increase in production, and we forecast that this production increase will have positive repercussions on our exports in the coming months. Within this scope, we set our sector export target at USD 20.6 billion. As an association, we organize many events ranging from national fair participation organizations to trade delegations, from urgent projects to competitions. Last year, we transferred these events to the digital environment due to the pandemic and continued them. This year, depending on the effects of the pandemic, we anticipate that events will again take place in the digital environment, but when the impact of the pandemic decreases, physical events can also be held. For this year, we have 19 planned events such as national fair participation and delegation organizations. Furthermore, to ensure our future is brighter, we are establishing a Chemistry Technology Centre that will highlight value-adding technological developments in our chemical sector, introduce new inventions, and be equipped with a digital library, reference laboratory and testing centres, a start-up incubation centre and a research and development centre. Our preliminary preparations are complete; we are in the feasibility and project writing stage. We will establish it with the support of Istanbul Development Agency. In addition, within the Chemical Sector Platform, where İKMİB held the 17th term presidency, we conducted the comprehensive 2021 Turkey Chemical Sector Convention on 12-13 March in the digital environment with sessions on 7 different topics. We addressed the current situation and future of our chemical sector. We raised the point that a National Chemistry Agency needs to be established. Considering that our sector is 70 percent dependent on imports in terms of raw materials, we face difficulties with delays in supply and cost increases due to freight rates and container shortages. Both the Ministry of Commerce and the Ministry of Industry and Technology are working with us to resolve this issue. We are following it closely. Within the framework of our government's reform efforts, we expect priority to be given to investments in our chemical sector. There was an important development on this matter. Within our Ministry of Industry and Technology's Technology-Focused Industrial Drive Program, our sectors of Chemistry (NACE code 20), Pharmaceuticals (NACE code 21), and Medical and Dental Instruments Manufacturing (NACE Code 3250) were added, and priority product lists were published in the Official Gazette on 27 February 2021. As İKMİB, we also prepared a report determining priority areas where investments can be made in our sector. We shared the "Turkish Chemical Sector Investment Priority Products Report" with both our relevant ministries and our sector and the public. We see that most of the products specified in our report are included in the announced list. We hope investments will begin as soon as possible and high value-added products will be produced in our country. In this way, while our foreign trade deficit is reduced, our raw material dependency will also be minimized. Of course, it will also have a positive contribution to our sector's export growth.  

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The total trade volume of chemicals production comprising Turkey's chemical market, plastic, pharmaceutical and drug manufacturing, rubber, paint, and composite sectors declined to approximately USD 63 billion for 2020. In 2020, exports increased 3.3 percent compared to the previous year to USD 18.35 billion, while imports decreased 1.5 percent to USD 35.7 billion. The current account deficit from the chemical sector declined to 35.5 percent of Turkey's total foreign trade deficit (it was 59 percent in 2019). Domestic market production from the chemical sector increased 12 percent, particularly in construction chemicals and paints. In 2020, automotive chemicals also saw a 9 percent decline in line with domestic sales. The chemical sector, which supplies production to some 30 different sectors, suffered blood loss in the domestic market due to the contraction of some sectors, excessive increases in raw material prices, and particularly the deterioration of payment balances for companies without exports, and generally turned to exports. However, because the share of medium and high-technology products in exports is low and there have been no large-scale and technological chemical investments in the last 10 years (with the exception of SOCAR), export increases in 2020 rose only 3.3 percent. Average unit prices remained at around USD 1/kg. This picture continued similarly in 2021. However, EU countries, which realize 46 percent of our exports, still experience major difficulties due to the pandemic, limited production, unavailability of containers, at least 300 percent increases in maritime freight rates, major difficulties in raw material supply, and particularly long-term closures by some EU factories are being monitored with concern. Furthermore, as the chemical sector produces dependent on approximately 75 percent imported raw materials, due to supply chain disruption, raw material prices have increased 3-4 times, with supply difficulties, transportation costs, and exchange rate differences, it unfortunately carries the risk of losses. Chemical sector exports to China are USD 375 million while imports are USD 3.8 billion—10 times higher. Similarly, for Japan and South Korea, low exports and 5-6 times imports are occurring. In short, 2021 domestic market demands are below 2020, and industrialists are trying to stay afloat by turning to exports if possible. Increased production capacity by EU chemicals, textiles, automotive, paint, specialty chemicals companies and, according to OECD estimates, raising EU economic growth to 3.9 percent (FITCH raised it to 4.7 percent) will significantly increase our exports. Turkey's 2021 GDP growth has been revised by the OECD to 5.9 percent. EU countries are careful not to share raw material stock quantities and not to discuss their economic situation too much. A decision was made in the press not to comment. Regulations such as "Green Deal" and REACH that would complicate our exports will be delayed by approximately 6 months. This will provide short-term benefits and time gains for our exports. However, Turkey must launch its full compliance process for the EU and investments. The chemical sector has generally turned to exports. This picture will continue in 2021. However, we are following with concern EU countries, which realize 46 percent of our exports, maritime transportation becoming a global problem, unavailability of containers, increases in maritime freight rates, and particularly large facilities in China, South Korea, the USA, and the EU beginning long closures due to fires, bad weather, facility relocations. Actually, for EU exports, orders received with delivery terms in the first half of 2021 are extremely high and diverse. Our forecast is approximately USD 19 billion in export returns in 2021. Ten percent of our total chemical imports come from China, and 10 percent from Japan, South Korea, Taiwan, and India. These production points have resumed operations and began exporting goods. However, due to maritime transportation and container problems, ship schedules that used to arrive in Turkey in 5-6 weeks have extended to 9-10 weeks. Needs from the EU are also arriving delayed for now. However, excessive price increases continue to decline gradually.

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Sectoral research and assessments conducted indicate that the chemical sector was affected by the contraction experienced worldwide during the pandemic. However, during this period, both in Turkey and globally, we can say that increasing demand for medical, hygiene, cleaning, and packaging products partly compensated for the losses the chemical sector experienced in other product groups. Evaluating the subject specifically for BASF; as BASF, we supply raw materials to almost all industries. During lockdowns, we were included in the scope of mandatory chemical industry operations. Particularly, given that the food sector and cleaning and hygiene industries, which increased in importance with the outbreak, occupy important positions in our portfolio, we continued uninterrupted production. Within the framework of our customer focus, our priority was ensuring our raw materials were ready on planned production dates and delivering products ready for shipment to our customers on time. We passed this test with considerable success. We continue our work considering all scenarios. The epidemic period we are going through has introduced new hygiene standards into our lives. As all product and service providers, we adapted together to these new conditions. On the other hand, we saw how fragile some processes that always operated smoothly can be and how important the existence of backup plans is. In crisis situations, we realized the value of agility and the ability to create alternatives in terms of business continuity. In this period where digitalization has intensely affected our lives, we have seen the positive effects of effective use of technology in supply chain on workflow. As BASF Turkey, in this process, as always, we placed our customer at our centre and focused on producing solutions by creating highly effective collaborations with both internal and external stakeholders. With the knowledge accumulated from global BASF and the strength of our Turkey operations, we continued production and maintained on-time service to our domestic and foreign markets. 2021 remains uncertain in terms of the pandemic. In light of KPMG's expectations regarding the Turkish economy, our view as BASF is that this year will pass with global recovery and healing of wounds. Turkey and China from developing countries stand out from other countries with their positive outlooks. Particularly when compared with the EU, major gains are expected for Turkey. On the other hand, the EU is a very important market for us. The impact of the outbreak in Europe is progressing above global averages. The EU countries are expected to take the biggest blow within regional contraction expectations. The EU's situation creates a negative outlook considering that 50 percent of Turkey's exports go to this region. Providing market diversity is an important factor in minimizing conditions that will strain us in terms of exports. The fact that the chemical sector is a sector that supplies raw materials and semi-products to many production areas constitutes an advantage in this regard. However, the environmental consciousness strengthened further by the pandemic and the approaching Green Deal implementations set all components in the value chain, including production, in motion regarding sustainable processes. Therefore, concepts such as carbon neutral growth efforts, green supply chain, responsible production, human value, and digitalization will be more present in our lives in 2021. As BASF, we are proficient in all these concepts in light of our global knowledge accumulation and local experience. In the Innovation Centre we put into operation in 2020 despite pandemic conditions, we create sustainable solutions suitable for our customers and our geography, taking their characteristics into account. While doing this, we develop ourselves continuously by benefiting from digital technologies. We attach great importance to university-industry collaboration and aim to increase science's contribution to industry by cooperating with valued academics and young people. With the contribution of these visionary efforts and sector stakeholders, our greatest desire is to remedy the negative effects of the pandemic for our country in the shortest time possible.

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2020 was an extremely difficult year that will go down in world history. As countries closed in on themselves due to measures taken to prevent the outbreak, the contraction on the demand side deeply affected almost all sectors. From SOCAR Turkey's perspective, I can say that despite all these difficulties, 2020 was a year in which we achieved our targets. Thanks to the integrated structure of STAR Refinery and Petkim, we worked with all our might to reliably supply the petrochemical raw materials Turkey needed during the pandemic and succeeded in continuous production. In 2020, the share of domestic sales in Petkim's total turnover reached 67 percent. Although prices in Petkim's product portfolio fell on average 20 percent on a dollar basis compared to the previous year, we increased our operational profit by 21 percent, raising it to TRY 1.9 billion. In the meantime, STAR Refinery, in addition to supplying naphtha as Petkim's raw material, contributed significantly to reducing Turkey's current account deficit through its domestic market sales. As demand declined due to the pandemic, we rapidly converted our jet fuel production to diesel and continued uninterrupted production. Particularly from the second half of 2020 onwards, at monthly capacities exceeding 100 percent, we increased our refinery's crude oil processing volume to 10.5 million tonnes. Looking at the sector in general; the refining sector experienced difficult times during the pandemic due to very low refining margins worldwide. We believe this situation is temporary, but it appears it will take some time for refining margins to return to previous levels. Even as vaccination began, we entered 2021 under the shadow of the pandemic. If all goes well, our expectation is that real recovery in demand will begin from the second half of 2021. In 2020, despite the pandemic, there was no disruption in our ongoing investment processes. We aim to complete additional investments we are currently making to increase STAR Refinery's operational agility and storage capacity by 2022. Once this project comes on stream, STAR Refinery's investment value will reach approximately USD 7 billion. We place great importance on digitalization efforts. The Covid-19 period initiated a new era in the way we do business. Because our production facilities and our company's technological infrastructure were suited to this process, we organized quickly and adapted rapidly to this new era. The pandemic period demonstrated once again the importance of 'high-quality product, speed, high efficiency, minimal environmental impact, flexible production capability' particularly in the petrochemical sector. Evaluating this new period correctly, we plan to use robotic process automation even more extensively in 2021. We are incorporating Industry 4.0 into both our operational and administrative processes such as production, maintenance, training, and occupational safety. Thanks to all these digitalization efforts, Petkim, with its digital applications and systems, was selected in 2020 as the only Turkish manufacturing facility in the World Economic Forum's (WEF) 'Global Lighthouse Network'. This is a great source of pride for us.